Exemption from Specific Tax — Subcontractor

July 31, 1979 BIR RULING NO. 069-79 Exemption from specific tax subcontractor This refers to your letter dated January 17, 1979 requesting the following information: "1. Whether the subcontractor contemplated in P.D. No. 1354 is still liable for the 3% contractor's tax ; and "2. Whether such subcontractor is likewise exempted from the specific taxes that are passed on to it by the suppliers of petroleum products (as in the case of the U.S. Military)." In reply, I have the honor to inform you that "every subcontractor, whether domestic or foreign entering into a contract with a service contractor engaged in petroleum operations in the Philippine shall be liable to a final income tax equivalent to eight percent (8%) of its gross income derived from such contract, such tax to be in lieu of any and all taxes, whether national or local . . ." (Emphasis ours; Section 1, P.D. No. 1354) Such being the case, the subcontractor is exempt from the 3% contractor's tax prescribed in Section 205 of the Tax Code on the said income derived from the contract with the service contractor. However, said subcontractor is not exempt from the payment of specific tax on petroleum products which are passed on to him by the suppliers of the petroleum products. The exemption of such subcontractor under P.D. No. 1354, applies only to such taxes for which the subcontractor himself would otherwise be directly liable. Consequently, the subcontractor cannot claim exemption from the specific taxes on petroleum products for the reason that the same are taxes directly payable by the manufacturers thereof. The fact that the taxes may ultimately be shifted to or passed on to the subcontractor will not convert the same as taxes on the subcontractor for the purposes of exemption. (See Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, et al., G.R. No. L-19707, August 17, 1969).